On the association between changes in corporate ownership and changes in auditor quality in a transitional economy

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

This study uses agency theory to test whether the demand for quality-differentiated audits by listed Chinese companies is systematically associated with changes in ownership structure, which is characterized by the dominance of government and institutional owners in a transitional economy. Our empirical test results are supportive of agency theory. Specifically, we find that a decrease of government shares and a corresponding increase of institutional shares lead to a general increase in the demand for higher-quality audits in China's stock market. However, the influence of individual shareholders on a firm's auditor-choice decisions appears insignificant. Our results suggest that in the absence of institutional features typically found in free-market economies that provide incentives for managers to supply credible accounting information via quality audits, the introduction of large institutional blockholders can be a good alternative for a transitional economy.
Original languageEnglish
Pages (from-to)19-36
Number of pages18
JournalJournal of International Accounting Research
Volume6
Issue number1
DOIs
Publication statusPublished - 1 Apr 2007

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Corporate ownership
Auditor quality
Transitional economies
Agency theory
Quality audit
Government
Shareholders
China's stock market
Free market
Ownership structure
Information quality
Market economy
Blockholders
Owners
Auditor choice
Managers
Audit
Accounting information
Empirical test
Incentives

Cite this

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title = "On the association between changes in corporate ownership and changes in auditor quality in a transitional economy",
abstract = "This study uses agency theory to test whether the demand for quality-differentiated audits by listed Chinese companies is systematically associated with changes in ownership structure, which is characterized by the dominance of government and institutional owners in a transitional economy. Our empirical test results are supportive of agency theory. Specifically, we find that a decrease of government shares and a corresponding increase of institutional shares lead to a general increase in the demand for higher-quality audits in China's stock market. However, the influence of individual shareholders on a firm's auditor-choice decisions appears insignificant. Our results suggest that in the absence of institutional features typically found in free-market economies that provide incentives for managers to supply credible accounting information via quality audits, the introduction of large institutional blockholders can be a good alternative for a transitional economy.",
author = "CHAN, {Koon Hung} and LIN, {Zhenpin, Kenny} and Fang ZHANG",
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On the association between changes in corporate ownership and changes in auditor quality in a transitional economy. / CHAN, Koon Hung; LIN, Zhenpin, Kenny; ZHANG, Fang.

In: Journal of International Accounting Research, Vol. 6, No. 1, 01.04.2007, p. 19-36.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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